Nov 07, 2012
Election clues? Oil, gold prices up, dollar dips
5:45PM EST November 6. 2012 - NEW YORK -- Wall Street kept a close eye on the U.S. dollar, crude oil and gold on Election Day thinking that price movements of those assets offer clues as to who will be in the White House the next four years and how traders feel about it.
Gold for December delivery increased $31.80, or 2%, to finish at $1,715
per ounce, its second consecutive day of gains.
A spike in gold suggests that President Obama will win a second term, says Quincy Krosby, market strategist at Prudential Financial.
Obama’s plans to stimulate the economy using borrowed money will make paper assets like the dollar less valuable. And gold holds its value in inflationary times.
Oil also gained sharply, jumping 3.6% to $88.71 a barrel. Some on Wall Street think if Republican challenger Mitt Romney wins, he could take a hard-line stance on Iran, potentially amplifying a geopolitical conflict that would result in an oil price spike, Krosby adds.
Some experts think the jump in oil prices is pegged to further political turmoil in Syria even though the price of crude oil has been hit in recent weeks by the effects of a weak global economy.
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The ICE dollar index, which measures the dollar against six major currencies, declined to 80.606 late Monday, a 0.1% dip, Marketwatch reported.
Some think that’s a bad sign for Romney. A spike in the dollar value would have been seen as a possible signal that traders believed he had a good shot at unseating President Obama, says Richard Suttmeier, chief market strategist at ValuEngine.com.
Romney, who is viewed as more fiscally conservative than Obama, is more conducive to a stronger dollar, Suttmeier says.
Romney is also no fan of the Federal Reserve’s easy-money policies, which have goosed stock markets but weakened the dollar the past couple of years. Romney has said he would replace Ben Bernanke, the architect of the easy-money policy, when the Fed chairman’s term expires in early 2014. Wall Street is betting that a President Romney would nominate a Fed chair who favors tighter monetary policy.
"The perception around the world is if Obama is re-elected the deficit will keep going up and there will be a lack of fiscal discipline," Suttmeier says.
Andrew Busch, a public policy strategist at BMO Capital Markets, says the dollar’s behavior, at least for the moment, is driven mainly by the Fed’s unconventional bond-buying policy known as quantitative easing. The goal of QE is to help keep U.S. interest rates low to stimulate borrowing and boost employment.
Busch says it will be tough for the dollar to mount a strong rally, no matter who wins the election. The reason: the Fed’s third round of QE is expected to exceed the size of QE2, which suggests the bond purchases could continue for at least 15 more months.
San Francisco Fed President John Williams suggested as much in a speech Monday. Williams said that as the Fed pushes down borrowing rates with its purchases of mortgage-backed bonds and U.S. treasuries, "the dollar tends
to decline as money flows to foreign markets with higher returns."
Williams also calculated that the Fed’s plans to buy roughly $600 billion or more in bonds during QE3 is likely to cause the dollar’s value to fall roughly 3% or 4%. The upside of a weaker dollar, of course, is that it helps the U.S. economy by making American products cheaper abroad, where most currencies are stronger relative to the dollar.
Of course, as important as events in the U.S. are to the dollar’s relative value, a widespread debt crisis in Europe continues to strongly impact currency trading.
Source：usatoday.com